the 5,000 bitcoins being Shrem’s). They fail on this basis alone. There are additional reasons

each of its four claims fail, as discussed in detail below. These reasons include, for example,

that WCF’s theft by fraud cause of action is likely to fail because it is time-barred by the

applicable statute of limitations.

With regard to the second requirement, WCF has fallen well short of meeting its

burden to make a convincing and non-speculative showing that Shrem had, or has, the

necessary fraudulent intent with respect to his current assets. He had and has no such intent,

and WCF has provided no credible evidence establishing Shrem has improperly hidden,

transferred, assigned, disposed of, or encumbered any significant assets. Shrem, in fact, has

not, of course, and he is in full compliance with all the terms of his probation, which require

1
We assume that WCF decided not to bring a breach of contract claim because such a claim
would be time barred. In any event, that claim would also be futile because there is no
alleged oral or written contract.

2
Case 1:18-cv-08250-JSR Document 45 Filed 11/05/18 Page 9 of 29

financial reporting. Before learning of WCF’s lawsuit, Shrem even paid a portion of the

$950,000 he owes the government under his plea agreement, and he plans to make additional

payments until the entire amount is paid off.2

Shrem engaged in no wrongdoing. Period. WCF’s motion to confirm the

prejudgment attachment must be denied with prejudice, and the Court should award

attorneys’ fees and costs to Shrem.3 The Court should also exercise its supervisory powers

and dismiss the entire case at this time in light of its false premise and the unfair, significant

disruption it has caused to Shrem’s life.

FACTUAL BACKGROUND

From 2011 to 2014, Charlie Shrem (“Shrem”) was the founder and CEO of BitInstant,

a bitcoin startup. (Affidavit of Charlie Shrem [“Shrem Aff.”] ¶ 2.) Shrem was also an early

adapter of bitcoin. (Id.) On December 30, 2012, a prominent bitcoin industry member who

Shrem was acquainted with, “Mr. X,” sent Shrem (and others) an e-mail in which he

expressed his desire to learn how to put bitcoin into a cold storage wallet, which is a method

2
If the Court wishes to discuss Shrem’s payment and payment plan, Shrem requests that this
be done in camera. Shrem’s criminal defense counsel, Marc Agnifilo, plans to attend the
upcoming hearing.
3
Promptly after receipt and review of the complaint and prejudgment attachment order,
Shrem’s counsel notified WCF’s counsel (in two phone calls and by e-mail) to advise that the
5,000 bitcoins were owned by an unrelated third party. Shrem’s counsel requested that
WCF’s counsel immediately dismiss the complaint and withdraw the attachment order.
WCF’s counsel refused to do either.

3
Case 1:18-cv-08250-JSR Document 45 Filed 11/05/18 Page 10 of 29

mailing Mr. X the address 1Shremdh9tVop1gxMzJ7baHxp6XX2WWRW to send his 5,000

bitcoins to. (Id. ¶ 4.) This is the same address referenced in WCF’s attachment filings and its

based its allegations there (and in the complaint) on the “findings” of a forensic accounting

firm that Shrem allegedly had made a series of transfers of 5,000 bitcoins in December 2012.

(App. at 4; Robinson Aff. ¶¶ 40-42, Exs. G, H.)

But the 5,000 bitcoins WCF alleges that Shrem purchased with WCF’s money

belonged to Mr. X at all relevant time periods. (Shrem Aff. ¶¶ 4-7.) Shrem never owned any

4
On November 2, 2018, WCF filed its motion to confirm attachment order, referring the
Court to its September 11, 2017 ex parte application for attachment for “the reasons why
attachment is proper.” (Mot. at 1.) Shrem objects to this procedure. Nevertheless, in this
Opposition, “Mot.” refers to the Motion to Confirm Attachment Order and “App.” refers to
the Ex Parte Application for Prejudgment Attachment, which we understand WCF is treating
as incorporated by reference.

4
Case 1:18-cv-08250-JSR Document 45 Filed 11/05/18 Page 11 of 29

of those bitcoins. (Id. ¶ 7.) Shrem, in fact, has never owned 5,000 bitcoins all at one time.

(Id.)

Shrem unfortunately only received notice of WCF’s complaint on Friday, October 26,

2018. Otherwise, he could have brought all of this to the Court’s attention sooner. And

Shrem was not actually served with WCF’s summons, full complaint, or ex parte application

for prejudgment attachment until, Monday, October 29, 2018. WCF filed its motion for

confirmation of the ex parte order for prejudgment attachment on November 1, 2018.

LEGAL STANDARD

Federal Rule of Civil Procedure 64 permits federal litigants to seek an order of

attachment in the manner provided by the law of the state in which the court is located.

Under New York law, which governs here because this case is in the Southern District of

New York, a plaintiff may obtain an order of attachment only if it demonstrates that: (1) it

has stated a claim for a money judgment; (2) it has a probability of success on the merits; (3)

the defendant, “with the intent to defraud his creditors or frustrate the enforcement of a

judgment that might be rendered in plaintiff’s favor, has assigned, disposed of, encumbered,

or secreted property, or removed it from the state or is about to do any of these acts”; and (4)

the amount demanded from the defendant is greater than the amount of all counterclaims

known to plaintiff. N.Y. C.P.L.R. §§ 6212(a), 6201(3).

“Because attachment is a harsh remedy, these statutory factors must be strictly

construed in favor of those against whom attachment is sought.” DLJ Mortg. Capital, Inc. v.

That same day, Mr. X went to BitInstant’s office and transferred his 5,000 bitcoins from

5
WCF gave the money to BitInstant, not Shrem. Shrem was acting in his capacity as CEO of
BitInstant during this time period. WCF therefore has sued the wrong party and should have
sued BitInstant, not Shrem. This is another cogent reason that the complaint fails.

A present expression of the intent to perform a future act is actionable as fraud only if

actually made with “a preconceived and undisclosed intention of not performing it.” Sabo v.

7
At most, WCF has alleged a claim for conversion, but has likely failed to plead that claim in
order to avoid the three-year statute of limitations for that claim. Regardless, there was no
conversion here.

368, 371 (S.D.N.Y. 1984). WCF’s fraud claim is time barred by either standard.

With respect to the two-year requirement, part of the reasonable diligence with which

a plaintiff is charged for purposes of triggering the two-year discovery period is a duty of

inquiry as explained by the Court of Appeals for the Second Circuit:

To determine when the fraud was or should have been discovered, New
York courts apply an objective test. If the circumstances of the alleged
fraud would “suggest to a person of ordinary intelligence the probability
that he has been defrauded, a duty of inquiry arises . . . .” When a plaintiff
“shuts his eyes to the facts which call for investigation, knowledge of the
fraud will be imputed to him.”

Cruden v. Bank of New York, 957 F.2d 961, 973 (2d Cir. 1992).

Here, there is no doubt that WCF was on notice of the alleged fraud by, at the latest

January 2013, when Cameron Winklevoss purportedly “confronted” Shrem about his alleged

“lack of proper accounting.” (Winklevoss Aff. ¶ 14.) As the order of attachment was not

granted until October 2, 2018 – more than five years after the statute of limitations had run –

the claim is time-barred under the discovery prong.

With respect to the six-year period, the statute of limitations begins to accrue from the